At 5280 Financial Group, we understand that purchasing a home is a significant financial commitment, and we strive to make the process as affordable and manageable as possible. One of the ways we do this is through our Temporary Rate Buydown programs. These programs allow borrowers to lower their interest rate for the first 12 to 36 months of their mortgage, resulting in lower monthly payments during the initial years of homeownership. Here’s everything you need to know about our Temporary Rate Buydown programs for home purchases.
What is a Temporary Rate Buydown?
A Temporary Rate Buydown is a financing option where the interest rate on a mortgage is temporarily reduced for the first few years of the loan. This reduction is funded by a lump sum payment made by the seller, lender, or borrower, which is held in a buydown account and released monthly to offset the mortgage payments. This results in lower monthly payments for the borrower during the buydown period.
How Does It Work?
- Seller-Paid Buydown: Seller concessions can be used to pay the upfront fee for the buydown. The total seller concessions must be greater than or equal to the buydown amount, and the seller must approve that the concessions will cover the buydown. If the property is sold or the mortgage is prepaid in full during the buydown period, the non-disbursed buydown funds will be credited to the unpaid principal balance of the mortgage.
- Lender-Paid Buydown: The lender or broker can cover the buydown fee through a Loan Level Price Adjustment (LLPA) charge. If the LLPA does not cover the entire buydown cost, seller concessions can be used to cover the remainder.
- Borrower-Paid Buydown: Borrowers can fund the buydown by financing it into the loan amount like other closing costs. The buydown amount will be included in closing costs and disclosed in Section A on both the Loan Estimate (LE) and Closing Disclosure (CD).
Eligible Products and Parameters
- Conventional Fixed and ARMs: Available for primary and second homes.
- Jumbo 30-Year Fixed Blue, Pink, and Yellow: Available for primary and second homes only. The Jumbo 30-Year Fixed Blue is only eligible for seller-paid temporary buydowns.
- Bank Statement 30-Year Fixed Orange: Available for primary and second homes only.
- FHA and VA Loans: Available for primary homes only.
- Buydown Options: 3-2-1, 2-1, 1-1, and 1-0 tiers. Only the 2-1 and 1-0 options are available on Jumbo 30-Year Fixed Blue, Pink, and Yellow, and Bank Statement 30-Year Fixed Orange.
Benefits of Temporary Rate Buydowns
- Lower Initial Payments: Borrowers benefit from lower monthly payments during the first few years of the mortgage, making homeownership more affordable upfront.
- Flexibility: A great way for borrowers to use any excess seller concessions that often go unutilized.
- Easier Transition: Helps ease the transition from renting to buying by providing lower initial payments.
- Potential for Future Refinancing: In a high-interest rate environment, borrowers may be able to refinance to a lower rate after the buydown period ends.
- Financial Planning: Borrowers can use the monthly savings to do renovations, upgrades, or buy furniture for their new home.
Example Calculations
Here are some examples of how the Temporary Rate Buydown can impact monthly payments:
- 3-2-1 Buydown: For a $350,000 loan at a 5% interest rate, the monthly payment would be $1,879. With a 3-2-1 buydown, the interest rate would be reduced to 2% in the first year, 3% in the second year, and 4% in the third year, resulting in significant monthly savings.
- 2-1 Buydown: For the same loan, the interest rate would be reduced to 3% in the first year and 4% in the second year, providing substantial savings during the initial years.
- 1-1 Buydown: For the same loan, the interest rate would be reduced to 4% in the first two years, providing substantial savings during the initial years.
- 1-0 Buydown: The interest rate would be reduced to 4% in the first year, offering a more modest but still beneficial reduction in monthly payments.
In conclusion, 5280 Financial Groups Temporary Rate Buydown programs provide a valuable opportunity for homebuyers to lower their initial mortgage payments, making homeownership more accessible and affordable. Whether funded by the seller, lender, or borrower, these buydowns offer flexibility and financial benefits that can help ease the transition into a new home.
For more information on our Temporary Rate Buydown programs and to see if you qualify, please reach out to your 5280 Financial Group team.
